US-China trade dispute is lowering oil quotes

01/29/2019

On Monday, the cost of the nearest futures contracts for the supply of European Brent crude fell below $ 60 a barrel for the first time in two weeks. The bear game is played against the background of the inability of the United States and China to come to an agreement, as well as restoration of drilling activity in the United States.

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The oil market began the new trading week with a fall in quotations. According to Reuters, during the bidding on Monday, the cost of the nearest futures contract for the supply of Brent oil fell to $ 59.5 a barrel, which is 3.5% lower than last week’s close. On the spot market, prices of European varieties are very close to the level of $ 60 per barrel. Thus, the cost of North Sea oil fell to $ 60.3 per barrel, and the price of Russian Urals oil fell to $ 60.5 per barrel. At the end of the day, prices for European oil varieties consolidated near the level of 1.7–3% below Friday's close.

After a rapid price increase since the beginning of the year, the correction has matured. For three weeks, the price of Brent crude rose by 18%, and reached $ 63.15 a barrel at the beginning of last week. This was facilitated by the start of negotiations between the US and China on trade duties, as well as the global increase in risk appetite among investors. In addition, since the beginning of the year, the OPEC + deal has begun to act to stabilize the situation on the oil market. Recall, on December 7, oil producers agreed to reduce oil production by 1.2 million barrels per day relative to the level of October 2018.

However, trade negotiations have not yet met the expectations of market participants. Beijing again proposed to increase imports from the United States and, within six years, reduce the trade surplus with this country to zero. However, the American side demands more radical concessions - in particular, to eliminate the imbalance in just two years.

Data on drilling activity in the United States has additional pressure on oil quotes have. On Friday, Baker Hughes reported that the number of active rigs last week increased by 10 units, to 862. This is the first increase since the beginning of the year. In such circumstances, market participants do not exclude further decline in oil prices, but doubt its duration.

Perhaps oil prices will be able to hold for some time below $ 60 a barrel, but in the medium term, the OPEC + agreement reached will have a positive effect on oil quotes. Moreover, Saudi Arabia intends to further reduce oil production. "The volume of oil production in Saudi Arabia will be significantly lower than the voluntary ceiling, to which the country agreed to under the OPEC + agreement to reduce production," king’s energy minister Khalid al-Falih said in an interview with Bloomberg. According to him, in February, oil production will drop to 10.1 million barrels per day from the current 10.2 million barrels.